Save us the shrinks — business is well aware of ethics

JANET ALBRECHTSEN
JULY 3, 2019
The Australian

Planting a psychologist in a boardroom to fix corporate culture could be dismissed as just another dopey but harmless idea from a clueless corporate regulator. Instead, here is a story about how one small idea captures the corporate zeitgeist in this country.

From the medicalisation of society to the Stalinisation of corporate life, from the bureaucratisation of boardrooms to the blame-shifting by board members and corporate regulators, this is what’s wrong with corporate Australia. Last week, Australian Securities & Investments Commission boss James Shipton doubled down on his plan to plant a psychologist in the boardrooms of our biggest companies, including the big banks, AMP, Qantas, Woolworths, Lendlease and IOOF, to check on corporate culture, board oversight of management, and other corporate governance practices. ASIC’s shrink of first choice, Elizabeth Arzadon, has declared the mission is monumental. She says the culture within the financial services sector is broken.

We know there are big problems in Australian banks and fin­ancial services companies. The Hayne royal commission revealed that across the banking and insurance industry, company executives and some board members behaved poorly. Some may have acted criminally. But diagnosing the system as broken to justify medical intervention creates its own set of problems. For starters, psychology is a more imprecise science than many medical fields. If putting psychologists in the boardroom becomes a new industry, it is open to gaming of the worst kind. There may be vested interests among members of the profession hoping the patient does not get better, so a budding new industry doesn’t dry up.

And there is every chance the patient does not improve because the so-called expert is patently out of their depth, trying to come to grips with the myriad challenges faced by different kinds of companies. As AMP chairman David Murray said last week, how can psychology experts with no business experience judge boardroom practices? How does a medically trained psychologist judge how a board manages risk if they know nothing about the types of risk peculiar to a company, or judge the testing of corporate strategy if they know little about that area?

While sitting in on a few board meetings may tell a psychologist a little about the behaviour of board members — assuming, for a moment, board members don’t feign best behaviour for the shrink — it’s not exactly rocket science. Experienced chairs and board members have usually spent a lifetime assessing corporate behaviour.

This faux medicalisation provides cover to lazy companies pretending to do the right thing. It may be worse than doing nothing. Some are mocking the move. As part of ASIC’s psych project, board members have been asked to pick five or six words from a list of about 80 in a questionnaire to best describe their board. Some have added their own choice words, a gentle dig at this silly idea. What’s next? Electrodes attached to foreheads to check if they are lying?

Putting psychologists into boardrooms is part of the Stalinisation of Australian corporate life. Companies are becoming like East German architecture: grey, conformist, no colour, no character, no light or variation allowed. ASIC says the move to submit to psychological assessment is voluntary, but even those opposed won’t want to be labelled a dissident, or worse. The shrink-in-a-boardroom experiment extends our obsession with conformance, not performance, setting up more one-size-fits-all governance rules for different companies instead of encouraging innovative corporate governance practices to discover what works best.

Conformity that imposes false gold standards chills competition and kills innovation. Companies are busy ticking boxes to satisfy a regulatory master rather than innovating. This is why, today, competitive advantage is found in private equity, where companies are freed from layers of regulatory rules. These companies can innovate and can deliver higher returns too. Follow the money: big industry superannuation funds are pulling money out of ASX 100 companies and ploughing it into private equity.

Putting psychology experts into boardrooms is also part and parcel of the growing bureaucratisation in Australia. While we follow every move of politicians, we have taken our eye off the bureaucrats who are building empires on the back of increasing regulation. Most of this empire building happens away from parliament.

Unlike the private sector, where failing companies work out how to make money or shut down, regulatory bodies that fail at their job — in their case, to properly regulate — have no clear bottom line. They keep arguing if only they were bigger, they would succeed, drawing on taxpayers rather than their own pockets.

This is ASIC in a nutshell, a body that failed comprehensively to enforce its own rules and is now creating more rules, like putting a shrink in a boardroom to fix a problem that grew under its incompetent enforcement practices. ASIC is becoming an acronym for A Silly Ideas Commission. The worst part of putting psychology experts into a boardroom is that it infantilises directors, treating them as part of a sickness, rather than getting them to man up to some simple truths. You don’t need help from someone with a psychology degree to learn basic business ethics.

As financial services royal commissioner Kenneth Hayne set out in his final report, start with six basic norms of behaviour: obey the law; do not mislead or deceive; act fairly; provide services fit for purpose; deliver services with reasonable care and skill; and, when acting for another, act in the best interests of that other. Psycho-babble, no matter how expert the doctor, is no substitute for these simple rules.

Last year, I attended a Sydney conference of chairmen and directors that included a wrist-slashing session about how to rebuild trust after the Hayne royal commission. Focus on the bleeding obvious, I suggested. If boards look out for their customers, all else falls into place, including the interests of shareholders.

Why, for example, did any bank executive or board member imagine it was acceptable to charge fees for no service? You don’t need a psychologist to tell you that is wrong by customers, by shareholders too, and the board is not meeting its oversight obligations. It’s the same with credit insurance products that, by their terms, were hardly ever cashed. The ratio of claims to premiums should have been a big clue to curious executives and board members. If the company is paying out a fraction of normal premium ratios, it is selling junk insurance to customers.

Instead of putting a shrink in a boardroom to measure board culture and oversight of management, paste Hayne’s six principles to the door of every boardroom. That will do more to fix a broken corporate culture than dozens of highly paid, degree-laden psychologists roaming corporate Australia for work.